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You Can't Dig Without a Shovel

The Canadian copper miner announces major equipment purchases.

As a yacht captain, I once had to postpone a sailboat delivery for several days because of a $0.39 engine part. Whether it's a NASA shuttle launch or a copper mine expansion, it's incredible the number of variables that can stymie a schedule.

With major backlogs for mining equipment piling up, mining companies eager to expand existing operations or develop new mines may be forced to adjust their timetables accordingly. Taseko Mines(AMEX:TGB) has no intention of letting that happen, as indicated by the recent announcement of a $100 million procurement package with several suppliers. For a small-cap miner with only a $725 million market capitalization, this is one serious shopping spree.

To expedite "Phase III" expansion at the company's prolific Gibraltar Mine in British Columbia, Taseko has negotiated the following strategically sequenced deliveries of equipment:

Four 240-ton Terex(NYSE:TEX) hauling trucks for 2008.

Two mining shovels and a production drill from Bucyrus(NASDAQ:BUCY) in 2009.

Delivery times for both mining and milling equipment continues to be a problem for many mine developers and this is having a dramatic affect on project timelines and completion dates. With these purchases, we have eliminated any such delays. Since the Phase III expansion requires a relatively small SAG mill, delivery time has been reduced to 20 months from the industry average of 40 months ...

This evidence of progress in the fast-track expansion of the Gibraltar Mine likely delights the 1,182 CAPS players who have rated Taseko an outperform, but the news has Foolish underpinnings for investors beyond this single company.

First, the anecdotal confirmation of a growing industrywide equipment backlog adds further support to a forecast for continued growth among mining equipment manufacturers. Indeed, the collective backlog among Terex, Bucyrus, and Joy Global(NASDAQ:JOYG) has risen to about $9.4 billion.

Zooming out further still, I believe several key factors are converging to constrain increases in the global metals supply, at a time when demand remains especially robust. Add this shortfall of mining equipment to rapidly rising input costs, reduced availability of financing from beleaguered financial institutions, and a spate of disruptions from natural disasters and other events. The result, I believe, will be reflected in further price appreciation throughout the raw materials complex.